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OCR increased to 5.5 percent

Date 29
April 2004

The Reserve Bank today increased the Official Cash Rate
from 5.25 percent to 5.5 percent.

Commenting on the decision, Reserve Bank Governor Alan Bollard said
“The New Zealand economy continues to perform strongly and this is being
supported by further improvements in the global economy. However, domestic
inflation pressures remain strong and annual CPI inflation looks set to rise
over the year ahead, as we projected in our March Monetary Policy
Statement. Moving interest rates to less stimulatory levels appears prudent
to ensure inflation remains within the target range over the medium term.

“Looking forward, the Reserve Bank will continue to monitor the data to
see what it implies for medium-term inflation. At this stage, it remains unclear
whether the fall in the exchange rate over recent weeks will be sustained and
thus what its impact on activity and inflation pressures will be. Within parts
of the domestic sector, such as housing and construction, some data suggest a
cooling in activity, but the evidence is mixed and pricing pressures remain
strong. Given these uncertainties, a further adjustment to monetary policy
cannot yet be ruled out.

“However, as noted in March, a number of factors are likely to have a
dampening effect on inflation pressures over the next year or so, reducing the
need for policy action. Two such factors would include a further fall in net
immigration and the delayed effects of the recent high exchange rate on activity
in the export sector.

“The Reserve Bank's next Official Cash Rate announcement will come with
the release of a Monetary Policy Statement on 10 June 2004.”

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